Page 489 - ACFE Fraud Reports 2009_2020

• The banking and financial services, government and • More occupational frauds originated in the accounting
public administration, and manufacturing industries department (16.6%) than in any other business unit. Of
were the most represented sectors in the fraud cases the frauds we analyzed, more than three-fourths were
we examined. committed by individuals working in seven key depart-
ments: accounting, operations, sales, executive/upper
• Although mining and wholesale trade had the fewest management, customer service, purchasing,
cases of any industry in our study, those industries and finance.
reported the greatest median losses of $500,000 and
$450,000, respectively. • The more individuals involved in an occupational fraud
scheme, the higher losses tended to be. The median
• As in previous studies, external audits of the financial loss caused by a single perpetrator was $85,000. When
statements were the most commonly implemented two people conspired, the median loss was $150,000;
anti-fraud control; nearly 82% of the organizations in three conspirators caused $220,000 in losses; four
our study underwent independent audits. Similarly, caused $294,000; and for schemes with five or more
81.1% of organizations had a code of conduct in place perpetrators, the median loss was $633,000.
at the time the fraud occurred.
• Fraud perpetrators tended to display behavioral warning
• Small organizations had a significantly lower implemen- signs when they were engaged in their crimes. The most
tation rate of anti-fraud controls than large organiza- common red flags were living beyond means, financial
tions. This gap in fraud prevention and detection cover- difficulties, unusually close association with a vendor
age leaves small organizations extremely susceptible to or customer, excessive control issues, a general
frauds that can cause significant damage to their “wheeler-dealer” attitude involving unscrupulous
limited resources. behavior, and recent divorce or family problems. At
least one of these red flags was exhibited during the
• While the implementation rates of anti-fraud controls fraud in 78.9% of cases.
varied by geographical region, several controls—exter-
nal audits of the financial statements, code of conduct, • Most occupational fraudsters are first-time offenders.
and management certification of the financial state- Only 5.2% of perpetrators in this study had previously
ments—were consistently among the most commonly been convicted of a fraud-related offense, and only 8.3%
implemented across organizations in all locations. had previously been fired by an employer for fraud-
related conduct.
• The presence of anti-fraud controls was correlated
with both lower fraud losses and quicker detection. We • In 40.7% of cases, the victim organizations decided not
compared organizations that had specific anti-fraud to refer their fraud cases to law enforcement, with fear
controls in place against organizations lacking those of bad publicity being the most-cited reason.
controls and found that where controls were present,
fraud losses were 14.3%–54% lower and frauds were • Of the cases in our study, 23.1% resulted in a civil suit,
detected 33.3%–50% more quickly. and 80.8% of such completed suits led to either a
judgment for the victim or a settlement.
• The most prominent organizational weakness that con-
tributed to the frauds in our study was a lack of internal • In our study, 8.4% of the victim organizations were
controls, which was cited in 29.3% of cases, followed fined as a result of the fraud. The proportion of victim
by an override of existing internal controls, which organizations fined was highest in the Western Europe
contributed to just over 20% of cases. (15.6%), Southern Asia (13.6%), and Asia-Pacific
(11.7%) regions.
• The perpetrator’s level of authority was strongly
correlated with the size of the fraud. The median loss
in a scheme committed by an owner/executive was
$703,000. This was more than four times higher than
the median loss caused by managers ($173,000) and
nearly 11 times higher than the loss caused by
employees ($65,000).

REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE 5